Reuters indicates that EMC will up its bid for Data Domain to as much as $35 per share. As previously posted, Data Domain’s products will fit easily into EMC’s product line replacing EMC’s current Quantum-based appliances. With this increased offer, EMC is increasing the pressure on NetApp and reaffirming their commitment to acquire Data Domain.
What does this mean?
EMC is stronger financially then NetApp as this table illustrates:
|Numbers as of||12/31/08||4/24/09|
|Cash & Equivalents||$5,844||$1,494|
Given the situation above, if EMC really wants Data Domain they will prevail. EMC has the financial strength to make an offer that NetApp cannot match. The only question is “Is EMC really committed to acquiring Data Domain?” In my opinion (and that of others I have spoken to), EMC wants Data Domain, and the Reuters pieces confirms this.
EMC’s aggressiveness puts NetApp in a tough spot. Their smaller cash position means that they cannot offer a competitive cash-only option unless they find new sources of cash such as a loan. Securing a line of credit is difficult in these tight credit markets and would likely leave NetApp at a disadvantage if they acquire Data Domain.
I have heard rumors that NetApp might try to play the regulatory card and pursue an anti-trust case against EMC if they acquire Data Domain. This will be a difficult to justify especially since NetApp claims market leadership in deduplication. According to this press release, NetApp has 37,000 systems running deduplication while the latest analyst reports suggest that Data Domain has shipped between 3,000 and 3,500 systems.
In summary, EMC has backed NetApp into a corner. NetApp has two options at this point and both are less than ideal:
- All out bidding war for Data Domain – There is no guarantee that NetApp can win, and if they did, at what cost? They would be strapped with debt and left in a difficult financial position. Obviously this is not favorable to long-term competitiveness and would put them at a disadvantage to EMC.
- Cede Data Domain to EMC – From a financial standpoint, this is probably the better option, but it is not what Data Domain and NetApp’s management wants. It also would leave NetApp without a compelling deduplication solution and in a weakened competitive position against a combined EMC/Data Domain.
I have watched this bidding war unfold with interest. With the latest salvo from EMC, it is clear that they will do what it takes to acquire Data Domain. NetApp cannot effectively compete with EMC’s stronger financial position and should start thinking about plan B.